Nifty future seems to have cleared the overhead resistances and looks set to continue towards the next set of resistance targets higher now.
- The momentum on the rise is visible but limited and hence we may see the move remain a bit slow,
Banks are yet to get into the act and their upward thrust is yet awaited. However IT fared well and looks poised to continue higher and thus may enable the upward price action of Nifty today.
- Sentiment turning better after three days of higher prices.
- FII buying returns to the market.
INDEX TRADE SUMMARY
- The move past 8335 triggered a long position in Nifty future. Stops can now be set below 8300 levels.
- Cnx IT also came thru as a buy, Set stop below 11000.
- Bank Nifty is a buy if above 18600 today.
- Ratio spread in NF suggested today.
STOCK TRADE SUMMARY
- Earlier stock views reviewed and ABirla and Bharat Forge added as fresh trades.
Monday’s letter was quite detailed and laid down the case for both sides of the market. Just to be on the safe side I had outlined the possibilities to the downside in fair amount of detail We had already covered the support aspect in some detail in earlier weeks. So one can say that both sides were done some justice!! The conditions for the upside were simple – show us some strength by moving up past the near term resistances. Fortunately the market did just that. Over the three sessions of the week the index has managed to sustain the bullish bias all thru, although there hasn’t been any sensational moves. But it has been steady and it has been consistent. It has also been supported by some good moves in stocks. The breadth has improved considerably and with both Banks and IT stocks pitching in and some help coming thru from OIl Gas and also a helping hand from pharma, the stage was set for some upward price action. The first thing the index did on Monday was to move out of the downs loping pitchfork. See chart. That set the pace going. This also managed to move out of the triangle pattern that I had spoken about in the Monday letter. So right off the bat, this week, the market indicated to us that it was in a mood to try for the resistances. This cooled the negative emotions although there were some intra day scares on successive days when the tentative sentiments of the traders did see rapid sell offs. But the bulls were quite up to the challenge and managed to contain the declines to limited levels. The Nifty future managed to overhaul the important supply zone of 8335 and once done managed to hang on to the gains rather facilely. This is what we wanted to see really- that strength had returned enough to push the bears back into the caves.
Will this last, is the main question? I had mentioned in the last letter that we need some flow of good news. What we got were some non-negatives. Like FII selling easing off. With the markets rising the reverse arbitrage was no longer possible. Rumours of rate cuts began to do the rounds even more strongly. Crude prices dropped in international markets. The Greece matter continued to blow hot and cold and continues to remain open Gold monetisation seems like a good idea- if it can be taken to fruition. However, results were still under par and those that had a whiff of being slightly longer impact were trashed e.g. Bharat Forge. We still have a couple of index heavy stocks left for the week and so there is still some pressure left there. However, Reliance picked up nicely, perhaps on the Rel Jio rollout possibility. In sum, it continues to be a mixed bag and some solid sentiment triggers are yet awaited.
But be that as it may, the move past 8335 put us into long position as had been indicated in the last letter. The trade has moved into positive. The long in Bank Nifty has not occurred yet as the prices continue to hang around the 18500 levels and have not gone past the trigger levels. The Cnx IT however was in a better shape. The index had shown a range shift signal at the end of the last week and built on that signal and thereby flashed a buy signal by Monday at 11270 levels and this too remains open now. Though Bank Nifty has a similar signal the overall set up is less impressive compared to Cnx IT and hence I would be inclined to go long only if it clears the 18600 levels. But problem is that the momentum in the rise is as yet rather limited and that prompts me to consider that the rise may be in fits and jerks.
Now the immediate resistance to overcome is 8435-65 zone and once that is done, a new price cycle that carries to 8575 will open up. The 50% retracement of the decline from the March high is placed at 8605. The new pitchfork median line is placed around 8550 where we also find the 62% retracement of the second leg of the decline. Ahead of these are some clusters using hourly charts near the 8510 levels. The 8500C strike is a big OI concentration and marketmen generally believe such concentrations to be indicative of resistance. So we have some more room to go. Given all these and the slow pace, it may be worthwhile to construct a ratio spread of 8450-8550 at a 1×2 ratio at a cost of around Rs.8. This strategy is profitable from 8458 thru 8650. Since our current projections don’t reach that far, it appears safe enough. If rise fizzles out then we lose nothing much.
Updates on some of the stock views that had been given on Monday.
Adani Ent came thru with a buy above 730 and traded up to m the bullish list has shown a nice top close. Can take some profits and move stop on balance to 766.
Bajaj Auto saw the rise continue to 2240 before reaction pulled it back a bit. Results due today. Buy dips to near 2120 with stop below 2100.
Eicher Motor view for a decline came thru nicely and the rise was clipped at the highs. If prices break 18000, then the pull back will continue. Avoid for now.
Idea looks like it wants to head higher. We still look for a buy at lower levels with stop below 168.
Jub Food did not give any meaningful pullback; instead it moved to a new high and we had that too marked for a buy. So can be long with a stop below 1670.
ABirla Nuvo is awaiting a big thrust upward. Go long one portion and add more if there is a bullish move here. Stop below 1800.
Bharat Forge tanked post results on statements that Q1 outlook too remains dull. At 1227 it is down one price cycle from the high. So if that low of yesterday is broken, then we can see further continuation lower. Hence it is a sell below 1225 today.